Large Expense

Large expense summary:

• Large expenses are expenses that don't fit into your regular budget.

• Some large expenses you can plan for, but others happen because of an emergency. 

• A personal loan could help you pay for large expenses, but it doesn't make sense to borrow in every situation. 

Large expense definition and meaning

A large expense is any expense that goes beyond what you normally budget to spend each month. Some large expenses you plan and save for. Others may take you by surprise if you have a financial emergency. 

Personal loans are one way to cover large expenses that exceed the amount of cash you have on hand. Financing large expenses makes more sense in some situations than others. 

Key concept: A significant outlay of money for a planned or unplanned event.

More on large expenses

You make your budget each month and that's great—a budget is a way to take control of your money. A budget could also help you set aside cash for large expenses you expect, like a wedding, a down payment on a car, or your next vacation because let's be honest, sometimes you need a break. 

But what if a large expense comes out of nowhere? Your car breaks down and you need $5,000 for the mechanic's bill, or a burst pipe means an emergency (and pricey) call to a plumber. 

You might not break a sweat if you have some extra cash tucked away. But if you don't, it helps to know what options you have to cover a large expense. 

Large expense: a comprehensive breakdown

What is a large expense? To keep it simple, it's an expense that you'd need cash savings or a loan to pay for. 

Your budget is how you plan for all your day-to-day expenses—rent or mortgage payments, utilities, groceries, debt repayment. A large expense usually means something you can't readily cover within your usual budget. 

You might set aside money from your paychecks to save for a large expense. For example, you could add sinking funds to your budget. A sinking fund is a savings fund for money that you eventually plan to spend. 

For example, you might save money for:

• A vacation

• New tires

• A down payment on a car or a home

• New furniture

• Home repairs or improvements

• Annual check-ups for pets

• Summer camp or extracurricular activities for the kids

Those all have the potential to be large expenses that you could plan for. Some large expenses, on the other hand, catch you off-guard.

That's when it pays to have an emergency fund to cover the occasional financial bumps in the road. If your rainy day fund is still a work in progress you might need a personal loan to cover large expenses, whether planned or unplanned. 

Personal loans for large expenses

A personal loan is a lump sum of money you borrow for personal reasons. Personal loans are usually unsecured, which means you qualify based on your credit standing and financial situation. 

So when does it make sense to use a personal loan to manage your finances? You might get a personal loan for large expenses if you:

• Know how much you'll need to borrow

• Have estimated what your monthly payments would be and are comfortable you can fit them into your budget

• Meet the lender’s qualification requirements

The type of expense also makes a difference. 

For example, it could make sense to use a personal loan to cover home repairs or upgrades if they'll raise your home's value. Or you might get a personal loan to consolidate debt if you want to streamline payments and potentially save money on interest. 

It usually doesn't make sense to finance large expenses if the payments would put a major burden on your budget or the expense is risky. You might want to start a business, for example, or invest a chunk of money in the market. But using a loan to do either one could leave you with a pile of debt and very little gain if the business fails or your investments don't pan out. 

If you plan to go ahead with a personal loan for large expenses, get prequalified to see how much you might be able to borrow and what rate you'll pay.